Last year, veteran Texas homebuilder Jim Lemming decided to construct houses to meet the prevailing tastes and lifestyles of Houston’s growing southwest suburbs. That meant he began building houses with prayer rooms, Islamic-style arches, domed roofs, and extra master bedroom suites to accommodate multigenerational households.
“This is a sophisticated city. We’re the most diverse city in the country, and if you don’t understand the different cultures that live here, it’s hard to sell them a home,” says Lemming, president of Houston-based Partners in Building.
Houston is an international gateway, says sociologist Stephen Klineberg, founding director of Kinder Institute of Urban Research at Rice University in Houston. “Over the last 30 years, this biracial Southern city, dominated and controlled throughout all of its history by white men, has become the single most ethnically diverse major metropolitan area in the country,” Klineberg says.
The city was primarily white and African American until three decades ago, he says.
The Houston area since has more than doubled in size, growing from 3.1 million people in 1980 to 6.3 million in 2013, according to the U.S. Census Bureau. Most of the migration to Houston over those years has been from Latin America, Asia, and Africa, breaking the old pattern of primarily European immigration. Harris County’s population is now 7.2 percent Asian, 17.6 percent African American, 37 percent Anglo, and 38.2 percent Latino, according to the U.S. Census Bureau. Some 100 different languages are spoken in the first-grade classes at Houston Independent School District, where the alphabet may be recited in Arabic, Spanish, Urdu, Nepali, or Mandarin Chinese.
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Houston grocers also can testify to the diversity of the city as they stock shelves to satisfy the palates of the people who make up the city’s melting pot. Houston shoppers spend 338 percent more than the average American shopper for mutton, goat, and game meat to feed their families—more than in any other metropolitan area in the United States, according to a recent New York Times study extrapolated from the U.S. Bureau of Labor Statistics Consumer Expenditure Survey.
In recent years, Houston gained favor with international investors during the boom in the oil and gas industry.
“Houston is on the global real estate stage, with international investors coming to Houston from China, Canada, the United Kingdom, India, Mexico, Japan, Russia, the Middle East, and from additional countries in Latin America, Asia, and Europe,” says Bill Gottfried, chairman of the Houston Association of Realtors’ International Advisory Group.
The Realtors association has addressed the multilingual clamor for Houston real estate by offering its online home listings in Chinese, French, German, Italian, Spanish, and Vietnamese, along with English.
On the commercial side, foreign investment dollars poured into Houston’s real estate markets in recent years as rising rents and low vacancy rates made the city’s office properties attractive.
In one of Houston’s biggest transactions ever, foreign capital stepped forward with gusto last fall when the 1000 Main office tower, an 837,000-square-foot (77,800 sq km) downtown building, went on the market with expectations that the property would fetch as much $450 million. Investors from Europe, the Middle East, Canada, and Asia all submitted serious offers, according to the investment broker handing the sale, Bernard Branca, senior vice president with CBRE Group in Houston.
The 2015 survey by the Association of Foreign Investors in Real Estate ranked Houston third in the nation on a list of most favored spots for real estate plays among foreign investors, trailing only New York City and San Francisco. Also, Houston ranked first for investment and development expectations for the United States in the Emerging Trends in Real Estate® 2015, report copublished by ULI and PwC.
One non-U.S. investor, the Tel Aviv–based Azrieli Group, has a strong affinity for Houston’s commercial real estate. Last year, the firm paid $76 million to buy its fifth Houston property, a four-story suburban office building. Other than its home base in Israel, Houston is the top city in the Azrieli Group’s commercial real estate investment portfolio.
Also, notably, when Houston’s three-building Lakes on Post Oak development was sold in 2014 as three separate buildings, two of the three buyers were foreign investors. FG Asset Management, a South Korean investment group, paid about $175 million to buy one building, and Chinese energy firm Sinopac paid $100 million for a slightly smaller tower next door.
Foreign capital investment in Houston commercial real estate in recent years has increased dramatically from the levels of a decade ago, says HFF senior managing director Rusty Tamlyn, a broker who has worked on deals in the city with a number of investors from the Middle East and Europe.
Foreign investors are driven by the realization that Houston is a world energy mecca, Tamlyn says, similar to the way New York City is the financial capital of the world and the San Francisco region is the epicenter of technology. As the nation’s third gateway and an energy center, Houston holds a long-term mantle of economic importance on an international scale.
“This is a mission-critical city,” Tamlyn says. “We are the energy capital of the world.”
Manufacturing Growth
Foreign investment flows into Houston for more than hold-and-sell real estate investment plays. Global manufacturers and businesses have made significant moves into the city.
For example, Daikin Industries, based in Osaka, Japan, recently announced plans to spend $417 million to build a campus for manufacturing air conditioners and furnaces that will employ 4,000 workers on Houston’s northwest side. And Swedish firm Alfa Laval, a global manufacturer of heat-transfer, separation, and fluid-handling equipment, recently leased a 105,000-square-foot (9,800 sq m) light manufacturing building under construction in a Hines business park in north Houston.
Luxembourg-based Tenaris, a global supplier of tubular goods for the oil patch, has planted deep roots in Houston. The firm, which employs about 2,000 people in southeast Texas, is constructing a $1.5 billion seamless pipe mill in Bay City, about 80 miles (130 km) southwest of Houston. And last fall, Tenaris paid $47 million to acquire an 11-story office building on Houston’s West Loop for its North American headquarters and its research and development facilities.
Currents of commerce churn in Houston’s thriving immigrant population, which has vigorously embraced the city’s free enterprise culture.
In Houston’s Mahatma Gandhi District about five miles southwest of downtown, scores of importers, jewelers, and restaurants cater to ethnic communities with Indian and Pakistani backgrounds, although Latino and Middle Eastern businesses have located there, as well. In the Gandhi District, consumers can find everything from saris to immigration lawyers to eateries with vegetarian steam tables serving chickpeas, curry, and naan bread.
Houston’s immigrants are twice as likely to start a new business than nonimmigrants, and they make huge contributions to the city’s business climate, says Patrick Jankowski, senior vice president of research at the Greater Houston Partnership, a nonprofit business-promotion organization. The partnership has identified about 3,600 Houston companies that do a significant amount of international business, he says, trading everything from oil field products to extra virgin olive oil.
Airport Upgrades
Enhancing Houston’s reputation as an international gateway has been the rapid expansion of nonstop international flights.
Last year, several airlines based outside the United States started or announced plans to commence service to Houston’s Bush Intercontinental Airport, including Scandinavian Airlines, Korean Air, Japan’s All Nippon Airways, Mexico-based Interjet, and Taiwan-based EVA Airways, according to the Houston Airport System, the city department that manages Houston airports. In 2014, Houston gained new nonstop international flights to Munich, Germany; Punta Cana, Dominican Republic; Santiago, Chile; Seoul, South Korea; Stavanger, Norway; Taipei, Taiwan; and Toluca, Mexico.
Citing stronger demand, Air China recently added more nonstop flights from Bush Intercontinental to Beijing Capital International Airport, and Turkish Airlines added more daily nonstops to Istanbul.
“A lot of the growth is driven by the international business that’s going on in Houston. The recovery of the Houston economy, Houston’s diversity, and just the overall strength of Houston builds demand for additional services,” says Molly Waits, director of air service development for the Houston Airport System. “We don’t see the trend ending. We anticipate more growth to Latin America in 2015, and there are longer-term opportunities for additional services to Asia, Africa, and Europe.”
Houston’s investment in foreign air travel is punctuated by the construction—to be completed by the end of this year—of a $156 million international terminal at William P. Hobby Airport, the smaller of the city’s two major passenger airports. In recent decades, Hobby has been devoted mainly to domestic flights, with Southwest Airlines dominating activity there. Now, the city is spending an additional $85 million in a two-year effort for parking and related infrastructure to support the new international terminal.
Though the much larger Bush will continue to dominate international travel, the new terminal at Hobby will allow Southwest to expand into international business at the airport. The Hobby international terminal will open up travel to Mexico, the Caribbean, and Central and South America, bringing an additional 1.5 million passengers to the airport annually.
Shipping Growth
Another infrastructure improvement that will prop up Houston is a $5 billion construction project that is not even happening in Texas—the expansion of the Panama Canal 1,700 miles (2,700 km) to the south.
When completed next year, the canal expansion will enable wider and longer ships to deliver bigger loads of cargo and containers from the Pacific to Houston’s port. To handle more container-ship traffic—and the larger ships that will transit the Panama Canal—the port recently launched a $68 million dredging program to deepen and widen the channels at its Barbours Cut and Bayport container terminals, work expected to be completed late this summer or early fall. And in late December the Port Commission awarded a $24 million contract to the Trans-Global Solutions company to expand Bayport’s container yard to enable more cargo containers to be loaded, stored, and stacked high.
Although Houston will be competing against the nation’s other Gulf and Atlantic ports, the Panama Canal expansion is expected to lead to about a 15 percent increase in cargo at the Houston port, port officials say.
“The Port of Houston Authority’s top containerized trading partners are China, Germany, Brazil, Italy, India, Belgium, the Netherlands, the United Kingdom, Spain, and France,” says Bill Hensel, corporate communications manager for the authority. “Trade with Asia in particular has seen considerable growth during the past decade or so.”
The Port of Houston is already the nation’s number-one port for export tonnage, and steel imports hit a record high in 2014. The Houston Port Authority reports more than $35 billion is being spent to construct new waterfront chemical plants, which will elevate Houston’s role as a producer of raw plastic for export to manufacturers around the world.
Houston’s place as a global gateway is infrangibly tied to the energy sector, which accounts for 40 percent of the city’s gross domestic product (GDP). More than 3,700 energy-related businesses operate in Houston, where many of the world’s largest energy companies have headquarters or regional hubs. Energy companies accounted for more than 60 percent of the office space leased in Houston in 2013, and the city leads the nation in office construction with 17 million square feet (1.6 million sq m) of space underway, according to CBRE.
However, the overwhelming strength of the city’s energy industry brings with it vulnerability, as demonstrated in the second half of 2014 when the price of oil, which had been falling all year, plunged in a matter of weeks. Prices recently were at half their levels of mid-2014, falling from a high of $107 per barrel last June to less than $50 in early 2015. Energy-related firms announced reductions in their exploration budgets, and thousands of employees have been laid off. Although Houston’s economy is diversified enough to withstand the punch, the Greater Houston
Partnership says, the downward slide in oil dented the city’s economic performance in 2014, and projections for 2015 are lower. After the Houston area gained 120,600 jobs in 2014, the partnership is forecasting 62,900 new jobs will be created in 2015.
The energy industry draws more than foreign dollars and trade to Houston; it brings people. BP America, formerly known as a unit of British Petroleum, has 7,500 employees in Houston. Sasol, a South Africa–based energy firm, is constructing a 175,000-square-foot building in Houston to house its North American headquarters, and 600,000 square feet (55,700 sq m) of office space is under construction to house the North American offices of Paris-based Air Liquide.
In addition, Texas-based ExxonMobil is constructing a 3 million-square-foot (279,000 sq m) campus on 385 acres (156 ha) on the north side of Houston that is to be completed this summer.
Despite the city’s reputation as an oil-and-gas juggernaut, not all the people relocating to Houston work for energy firms. Employees and professionals from a wide variety of fields are drawn to the city, says Amy Bernstein, a broker with Bernstein Realty in Houston, which does a substantial amount of residential relocation business.
“Our relocation business is very diversified,” says Bernstein. “It’s not just one sector. A large part of it is energy, but it’s not all energy.”
The diversified economy stabilizes Houston during the era of lower oil prices as other sectors, such as shipping and medicine, make up for some of the energy cutbacks and layoffs.
The Houston business community watches the price of the benchmark West Texas Intermediate crude with the intensity of farmers waiting for rain. The lower oil prices go, the higher the anxiety.
If the prices dip below $50 per barrel and stay there for many months, exploration for domestic energy will decline significantly to the detriment of Houston energy companies.
On the other hand, with the prevailing lower oil prices, Houston’s petrochemical industry obtains cheaper feedstock for the area’s petrochemical plants. The ongoing expenditures to build new ethylene plants are delivering a huge shot in the arm for the economy.
Four large ethylene plants are under construction, and when finished in 2017 will deliver raw plastics for use by manufacturers around the world. About $18 billion is being spent now to build the four ethylene plants for Chevron Phillips, ExxonMobil, Formosa Plastics, and Dow Chemical. About 27,000 construction jobs will be created by the ethylene plants—a silver lining to the oil price decline that should help offset some of the job losses in the oil fields.
Ralph Bivins is a Houston-based freelance writer and editor of Realty News Report, an award-winning website and e-newsletter.
